Olam 6.75% US$

[BeDisciplined]

I have similar question too. Does the bond / preferential price in Singapore stock exchange include the coupon that needs to be paid to the seller? If it doesn't and using the case of Olam 6.75%, the final price paid would be 1.049 (assumed Friday closing price is the buy price) + whatever pro-rated coupon ($) for the seller...correct?

So SGX would do the calculation and inform buyer of the final price?

[tanjm]

The quote you will see is including accrued interest. So basically it is net of everything except commissions.

As for yield, yield/clean price (where clean price = price you pay - accrued interest) is called "current yield". That's not the same as yield to maturity (frequently shortened to just "yield"). The yield is the Internal Rate of Return you get from the cashflows. You can use excel's XIRR function to calculate this if you have all the cashflows. It is not the same as "current yield". e.g. if my bond price is 100 with a coupon rate of 4%, then my yield will be the same as the current yield and the coupon rate. But if the price is now 110, my current yield is 3.6%, but my yield to maturity will depend on when the bond will expire (the closer it is, the lower the yield - that's because the coupon will have to "work harder" to justify the price of 110 by the time it expires and returns 100). If that bond expires in Jan 2018, its yield would be only 1.3%. If the same bond expires in Jan 2030, its yield would be 3.2%.

There are bond calculators on the internet (they will be approximate only but should be good enough).

[tanjm]

I doubled my stake on the day that this deal was announced, and I'm sitting on a paper gain. But I intend to hold till maturity so delisting theoretically doesn't concern me. The bonds are obligations by Olam to bondholders. I haven't looked but I doubt that listing status is a condition and even if so, see below.

Having said that, the F&N episode shows that corporations can play games with the rules. In that particular case, a technical default (with forced redemption at par) was the threat brought to the table to get bondholders to agree to sell back bonds. In this case, i believe the same trick can't be tried and in any case it would be reputationally negative for Temasek.

So overall I'm happy to hold on till maturity. If Temasek/olam want to buy back the bonds, I'll be happy to consider. However my private estimate of the fair value of this bond may be around 110. It would be worth even more than 110 to me if Temasek really takes over and delists Olam.

Revision of my original opinion.

I have just read the original Offer Information Statement (OIS) and I realize that the company has the right to call back the bond on or after the 2nd anniversary of the issue of the bond at 1.03375 + accrued interest.

Given that Temasek now substantially owns the company, I think it is almost certain that Olam will call the bond given that it can probably refinace at a lower rate. By my calculation then, the current price of the bond (1.074), not counting brokerage, is about a 3.8% yield to call. A one year risk free yield is currently 0.25% and Temasek itself can get 50bp spread on its loans, so the highest possible price this can go is probably around 1.09 (a theoretical ceiling, probably not reached).

Anyone who bought on or before the announcement is going to sit on a fair profit, but this is a warning not to chase too much at the current price.

[tanjm]

I doubled my stake on the day that this deal was announced, and I'm sitting on a paper gain. But I intend to hold till maturity so delisting theoretically doesn't concern me. The bonds are obligations by Olam to bondholders. I haven't looked but I doubt that listing status is a condition and even if so, see below.

Having said that, the F&N episode shows that corporations can play games with the rules. In that particular case, a technical default (with forced redemption at par) was the threat brought to the table to get bondholders to agree to sell back bonds. In this case, i believe the same trick can't be tried and in any case it would be reputationally negative for Temasek.

So overall I'm happy to hold on till maturity. If Temasek/olam want to buy back the bonds, I'll be happy to consider. However my private estimate of the fair value of this bond may be around 110. It would be worth even more than 110 to mie if Temasek really takes over and delists Olam.

Revision of my original opinion.

I have just read the original Offer Information Statement (OIS) and I realize that the company has the right to call back the bond on or after the 2nd anniversary of the issue of the bond at 1.03375 + accrued interest.

Given that Temasek now substantially owns the company, I think it is almost certain that Olam will call the bond given that it can probably refinace at a lower rate. By my calculation then, the current price of the bond (1.074), not counting brokerage, is about a 3.8% yield to call. A one year risk free yield is currently 0.25% and Temasek itself can get 50bp spread on its loans, so the highest possible price this can go is probably around 1.09 (a theoretical ceiling, probably not reached).

Anyone who bought on or before the announcement is going to sit on a fair profit, but this is a warning not to chase too much at the current price.

As expected, olam is exercising its right to redeem these bonds at 103.375.

http://infopub.sgx.com/FileOpen/28Jan201...emption_US$750million.ashx?App=Announcement&FileID=332902

[specuvestor]

Nice call on this opportunity. Good risk/reward call.

[valuebuddies]

I spoke and studied a lot, but yet to get invested...